Crude Oil Prices and Prices at the Pump

This morning, I noticed that the price of gasoline at the pump was $1.77 per gallon.  To put that in perspective, when I first started driving, I remember the price being around $2.02 per gallon…

How does the price of crude oil correlate to the price of gasoline at the pump?

Good question!  As of the publication of this blog, according to Bloomberg Energy, the price of WTI Crude is $26.10 per barrel and Brent Crude is $33.63 per barrel.  There is clearly a correlation between the price at the pump and the price of a barrel of crude oil.

Crude oil is the main component making up gasoline, so the price of a barrel of crude oil truly does account for a substantial part of the price of gasoline. 

However, in addition to refinery costs, etc., there are other factors that come into play when looking at the price of gasoline at the pump.

The other main factor to consider when looking at the price at the pump, and the price of crude oil as well, is demand.  Recent headlines have been addressing lower gasoline demand: 

According to Bloomberg’s article entitled, Staggering Loss of Oil Demand Raises Pressure on OPEC+ to Cut Output:

“The most shocking drop in U.S. consumption was concentrated on gasoline, long the fuel that powered the American way of life. The Energy Information Administration said a proxy for gasoline demand fell to 5.06 million barrels a day, the lowest since weekly data is available starting in 1990. Separate monthly data suggests the U.S. may have not consumed so little gasoline anytime since 1969, the year of the moon landings.”

A critical factor in both crude oil prices and the price of gasoline is supply.  The big discussion concerning supply recently has focused on the global crude oil supply.  As we all know, that is where The Organization of Petroleum Exporting Countries (“OPEC”) has historically come into play.  OPEC is reportedly set to meet virtually this week actually, on April 9, 2020.

Hand in hand with supply issues come storage issues.  In fact, storage issues that we did not think possible may be on the horizon.  According to a recent article in S&P Global entitled, No place to go: Oil storage filling up amid collapsing demand, excess production, “Concerns are mounting that the U.S. soon may not have enough oil storage to absorb a collapse in demand caused by the coronavirus that has started to ripple through the supply chain, with consequences for producers, pipelines, refiners and consumers.” 

Therefore, while consumers may be happy about the low price of gasoline at the pump, we cannot lose sight of the other factors contributing to that low cost and the potential consequences of the same.  Stay tuned…

Melissa Lyon is a skilled litigator and transactional attorney with a particular focus on the needs of clients in the energy and natural resources sector. Staying true to her country-law roots, Melissa is distinguished by her work ethic, leadership, and her charisma, and she is consistently recognized by clients for her dedication to achieving successful resolutions.
 
» See more articles by Melissa J. Lyon
» Read the full biography of Melissa J. Lyon at Steptoe & Johnson